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Martin Lewis: Money Saving Expert’s best life insurance plan for you revealed

MARTIN LEWIS, the Money Saving Expert, revealed how to find the best life insurance plan for you on This Morning today.

Martin Lewis revealed how Britons can find the best life insurance plan.

The UK based Money Saving Expert revealed that life insurance is important for anyone with a family on This Morning today.

He said: “It’s an unpleasant conversation, but life insurance is a key consideration for anyone with a family – as it’s important to think are your finances protected should the worse happen.

“Sadly, around one child in 29 loses a parent before they grow up. And the grief and misery are often compounded by a loss of income causing financial crisis. Yet life insurance is one of the cheapest ways to protect against this.”

Martin revealed his guide to finding the best life insurance plan.

Martin Lewis also recently revealed how you can save £600 in two minutes with a direct debit trick.

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Martin Lewis: Money Saving Expert’s best life insurance plan for you revealed

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Martin Lewis: Around one child in 29 loses a parent before they grow up

Martin Lewis: Money Saving Expert’s best life insurance plan for you revealed

What is life insurance?

Life insurance is an insurance policy you take out, that’s designed to pay out a lump sum when you die. This could be to a partner or to children who are financially dependent on you. There are three main types of life insurance policies (as well as investment type life assurance plans).

1) Level term life insurance – here the policy pays out an agreed set amount if you die during a set time.

2) Mortgage decreasing-term life insurance – here the policy pays out the remaining amount on your mortgage. So the amount decreases with time.

3) Whole of life insurance – the policy is mainly about mitigating inheritance tax costs.

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Martin Lewis: UK based Money Saving Expert revealed that life insurance is important for anyone

Level term life insurance

With this you pay a monthly premium, and it then pays out a set amount of money if you die within a set period of time. For example, you can cover yourself to pay out £200,000 if you die within the next 20 years. The more cover you get and the longer the term you want, the more your monthly cost will be.

And as the policy only pays out on death (or terminal illness) – and there’s usually little dispute over whether someone is dead or not – and it pays a fixed amount, then providing the company is reputable, in most cases it’s just a case of the cheaper the policy, the better.

How much should I cover myself for?

If you’re single and have no children you don’t need life insurance. The whole point of the insurance is to pay a lump sum to those that rely on your income once you’re gone. So if you’ve no partner or children who need the money then there’s not much point getting it.

For couples and families it’s about considering what your financial situation would be if one of you died – what would you do? A rough rule of thumb is to cover 10 times the main breadwinner’s income, yet you don’t have to stick with that. It may just be a case of do what you can afford. And generally you’d get cover for children until they finish full time education.

Ideally your policy should cover any outstanding debts that need to be paid off (including a mortgage if you don’t have a separate policy), outgoings your dependants would need to pay, future spending you would have wanted to make, eg, university help for the kids, any additional expenses a death may trigger, such as funeral costs.

If I have a medical condition can I still get cover?

Yes you can, and you must disclose this. It may mean your premiums are more expensive, as you may have a higher risk of dying soon. Similarly, your premiums may be more expensive if you’re a smoker or have a dangerous career. To count as a non-smoker you usually have to have been nicotine-free for at least a year (though some insurers can ask for five years), so if you got a policy and have given up since then, it could be worth requoting.

Do my dependents have to pay tax on the insurance pay out?

No they don’t have to pay any income tax, but they may have to pay inheritance tax, as the pay out does count towards your estates value. Putting a policy into a trust, which you do at the same time the policy is taken out means the insurance pays out directly to your dependants, so it never becomes part of your estate, which avoids inheritance tax and speeds up the pay out.

It’s easy to do and most insurance policies include the option (and papers) for writing in trust directly at no extra charge. If you know what you are doing, you can write the policy in trust yourself. If not, get advice from one of our cheapest advisory brokers (more on that below).

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Martin Lewis: Life insurance is a key consideration for anyone with a family

Ok, so where do I get a policy from?

Don’t go straight to an insurer – as you’ll pay full price and it’s not the cheapest on the market. Even using a comparison site – while better than going direct to an insurer – isn’t the cheapest way, as they find you the cheapest option generally at full commission and that can be huge.

If you don’t need advice, then best is to go to a discount broker. They usually charge a £25 fee, but they rebate all the commission they get from the insurer into your policy (so you basically get a discount hence the name discount broker). So, while the fee is a one-off £25, you can save £1,000s over the life of policy. It’s an easy win. The top discount brokers are Cavendish Online, Moneyworld and Money Minder.

Life Insurance

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Level Term Life Insurance

One of the most popular life insurance policy types is level term insurance. These policies will offer you protection in the event that you die within a certain set period.

The amount paid out will not change over the course of the policy term unlike with decreasing term insurance.

What are the benefits of level term life insurance?

When you take out a level term life insurance policy, you’ll set a term at the beginning, usually around 25 years, as well as a pay-out size. This pay-out will be the same whether you die at the beginning or end of the policy term.

One of the main reasons people take out life insurance policies is to make sure that their remaining family can keep up with mortgage repayments in the unfortunate event of their death.

People in this position will generally set the term as the same as that associated with the mortgage. If you’ve got a repayment mortgage, rather than an interest-only mortgage, then this has the added benefit in that the later in the term that a claim is made, the more money there is to be paid out in excess of that which is left on the mortgage, leaving more spare cash for you loved ones.

The same goes for any other household or personal debts you may have, not just mortgages.

Level term life insurance is not just for debts though, you may simply want to leave a certain amount of money for your family to help them cope financially during the most difficult of times.

It is important to bear in mind that should you live beyond the length of the policy term, you will no longer be protected in the event of your death and if you wish to open up a new policy to continue cover, it will be more expensive due to your increased age.

Costs of Level Term Life Insurance

The price of your premiums will be based on various things. Firstly, your health, you family medical history and the general riskiness of your lifestyle – this includes whether or not you smoke.

Beyond this, the length of the term you choose and the size of the pay-out you want will of course set the amount you pay for your premiums.

Generally, level term life insurance policies come with guaranteed premiums, meaning that they will stay the same throughout the course of the policy’s term. This is as opposed the reviewable premiums, which are subject to change according to various factors including general changes in the insurance market and inflation.

Decreasing Term Life Insurance

An alternative to level term life insurance that is particularly appropriate for those with repayment mortgages is decreasing term life insurance.

As the name would suggest, with these kinds of policies, the pay-out decreases over time as the size of outstanding repayments on your mortgage or other debts go down.

Decreasing term life insurance policies are, other things being equal, cheaper than level term policies given the decreasing pay-out size.

Whole of Life Insurance

On the other side of the spectrum, we have whole of life cover, which assures a pay-out upon the death of the policy holder without requiring a set term.

Given that these polices do not run out until either you cancel them or you die, they tend to be more expensive than both decreasing and level term insurance.

And again, given the increased length of whole of life policies, they will generally come with reviewable premiums, subject to increases during the course of the policy.

Compare Level Term Life Insurance Policies

Head over to our life insurance comparison page to make sure that you get the best deals on your level term cover quickly, easily and at no extra cost.

Why do I need Life Insurance?

Life Insurance is designed to pay out a lump sum to your relatives or other beneficiaries in the unfortunate even of your death, offering peace of mind and financial security at the most difficult of times.

How life insurance works, what to consider and where to get it from

It’s an unpleasant conversation, but life insurance is a key consideration for anyone with a family – as it’s important to think are your finances protected should the worst happen. Our Money Saving Expert Martin Lewis is here with his guide to how it works, what to consider and where to get it from…

Sadly, around one child in 29 loses a parent before they grow up. And the grief and misery are often compounded by a loss of income causing financial crisis. Yet life insurance is one of the cheapest ways to protect against this. To read about how it works in detail see Martin’s full ‘Life Insurance guide’, but in brief…

What is life insurance?

Life insurance is an insurance policy you take out, that’s designed to pay out a lump sum when you die. This could be to a partner or to children who are financially dependent on you. There are three main types of life insurance policies (as well as investment type life assurance plans).

1) Level term life insurance – here the policy pays out an agreed set amount if you die during a set time.

2) Mortgage decreasing-term life insurance – here the policy pays out the remaining amount on your mortgage. So the amount decreases with time.

3) Whole of life insurance – the policy is mainly about mitigating inheritance tax costs.

What I’m going to concentrate on today is level term life insurance.

With this you pay a monthly premium, and it then pays out a set amount of money if you die within a set period of time. For example, you can cover yourself to pay out £200,000 if you die within the next 20 years. The more cover you get and the longer the term you want, the more your monthly cost will be.

And as the policy only pays out on death (or terminal illness) – and there’s usually little dispute over whether someone is dead or not – and it pays a fixed amount, then providing the company is reputable, in most cases it’s just a case of the cheaper the policy, the better.

How much should I cover myself for?

If you’re single and have no children you don’t need life insurance. The whole point of the insurance is to pay a lump sum to those that rely on your income once you’re gone. So if you’ve no partner or children who need the money then there’s not much point getting it.

For couples and families it’s about considering what your financial situation would be if one of you died – what would you do? A rough rule of thumb is to cover 10 times the main breadwinner’s income, yet you don’t have to stick with that. It may just be a case of do what you can afford. And generally you’d get cover for children until they finish full time education.

Ideally your policy should cover any outstanding debts that need to be paid off (including a mortgage if you don’t have a separate policy), outgoings your dependants would need to pay, future spending you would have wanted to make, eg, university help for the kids, any additional expenses a death may trigger, such as funeral costs.

If I have a medical condition can I still get cover?

Yes you can, and you must disclose this. It may mean your premiums are more expensive, as you may have a higher risk of dying soon. Similarly, your premiums may be more expensive if you’re a smoker or have a dangerous career. To count as a non-smoker you usually have to have been nicotine-free for at least a year (though some insurers can ask for five years), so if you got a policy and have given up since then, it could be worth requoting.

Do my dependents have to pay tax on the insurance pay out?

No they don’t have to pay any income tax, but they may have to pay inheritance tax, as the pay out does count towards your estates value. Putting a policy into a trust, which you do at the same time the policy is taken out means the insurance pays out directly to your dependants, so it never becomes part of your estate, which avoids inheritance tax and speeds up the pay out.

It’s easy to do and most insurance policies include the option (and papers) for writing in trust directly at no extra charge. If you know what you are doing, you can write the policy in trust yourself. If not, get advice from one of our cheapest advisory brokers (more on that below).

Ok, so where do I get a policy from?

Don’t go straight to an insurer – as you’ll pay full price and it’s not the cheapest on the market. Even using a comparison site – while better than going direct to an insurer – isn’t the cheapest way, as they find you the cheapest option generally at full commission and that can be huge.

If you don’t need advice, then best is to go to a discount broker. They usually charge a £25 fee, but they rebate all the commission they get from the insurer into your policy (so you basically get a discount hence the name discount broker). So, while the fee is a one-off £25, you can save £1,000s over the life of policy. It’s an easy win. The top discount brokers are Cavendish Online,Moneyworld and Money Minder.

Level Term Life Insurance

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What is level term life insurance?

When you buy life insurance, you pick an amount – known as the ‘sum insured’ – and an amount of time to be covered for, called the ‘term’.

Level term life insurance covers you for a set sum that remains the same during the term. Premiums are always fixed with a standard level term life policy, which means the price won’t increase with inflation, for example, but then neither will the sum insured or the payout.

If you don’t die during the term, your level term life insurance simply lapses and you’ll need to take out a new policy if you want further life insurance.

Why consider level term life insurance?

If you have a mortgage, it’s often the case that the mortgage lender will stipulate having a life insurance policy in case the worst should happen to you or your partner. Some homeowners will consider level term life insurance because the lump sum can pay off a mortgage.

But what sets a level term life insurance apart from other types is that the payout will remain the same, regardless of whether you’ve made one mortgage repayment or you’ve only got one left. If you were to die having paid off the majority of your mortgage, the remaining amount could be handed down to your dependants.

It’s different to decreasing term life insurance

Another popular type of life insurance for homeowners is a decreasing term life policy. As its name suggests, a decreasing life insurance policy pays out an amount that reduces over time – for example 25 years.

This means that as you start to repay your mortgage, the amount of cover goes down. If you were to die 10 years into your mortgage, your repayment would cover the outstanding debt – but if you’d made 19 years of repayments, for example, the payout would be even lower because the size of your mortgage will have shrunk.

Other reasons to consider level term insurance

There are, of course, other compelling reasons to take out level term life insurance. For one, many people take out this sort of cover because they want to be able to provide for their family if they die unexpectedly. If you took out a level term policy, then your loved ones would be given a lump sum to do with as they wish on your death.

Are there alternatives to level term life insurance?

Level term life insurance is the ideal option if you are looking for a set amount of cover for a certain period.

However, if you are thinking of buying a policy specifically to cover a debt that will shrink over time, such as a repayment mortgage, you might be better off opting for ‘decreasing’ rather than level cover. Decreasing life insurance policies pay out an amount which reduces over time, and means your premiums will be cheaper than with a level term life insurance policy.

Family income benefit insurance is another alternative policy that pays out a monthly income from the point of claim to the end of the policy term. If, for example, you died in year 15 of a 20-year term, the insurer would pay an income to your family for the remaining five years of the term. Premiums for family income benefit insurance tend to be cheaper than level term life policies.

You could also choose a joint life insurance policy with a partner or other family member. However, this will only pay out once on the death of the first member of the policy, and the surviving person will need to consider whether to take out their own life insurance policy. If they’re over 45, they may find it expensive to take out their own level term life policy.

How much does level term life insurance cost?

The younger you buy level term life insurance, the cheaper your premiums will be. According to MoneySuperMarket data, those in the 30 to 35 age group will pay an average of £9.19 per month, while those in the 45 to 65 bracket will pay around £35.01 per month for level term life insurance without critical illness cover.

If you include critical illness cover to your level term policy, the payments become pricier.

MoneySuperMarket data from January to April 2018, showing the average cost of level term life insurance by age group. Correct as of April 2018.

Review your level term life insurance cover

You should regularly review your life insurance to make sure it still meets your needs, especially if your circumstances change. For example, if you buy a bigger property and extend your mortgage, you’re likely to need additional cover, perhaps for a longer term. You might also want greater protection in place if your family expands.

Remember, however, never to cancel an existing policy until you have a new one in place, as this will leave your loved ones without any protection.

Save on level term life insurance

There are ways to save money on your level term life insurance:

  • Don’t over-insure yourself. It may be tempting to take out cover for hundreds of thousands of pounds, but know that this will make your premiums much more expensive. So while you may be helping your family in the long run, it might be hard to keep up the payments.
  • Check if you’re already covered by your employer. Many firms provide life insurance with a sum insured of, say, four times the individual’s salary as part of their employee benefits – especially if you have a particularly dangerous or risky job.
  • Stop smoking. Smokers pay 64% more for level term life insurance without critical illness cover, and 47% extra when critical illness is included.
  • Take out a policy sooner rather than later. You’ll pay more for level term insurance if you’re over 45. Life insurance for the over 50s can be more expensive, with more restrictions.
  • Shop around. Whether you’re already insured, or if you’re looking to take out your first policy, it’s important to shop around to make sure you find the right cover for you, at a price you can afford.

MoneySuperMarket data from January to April 2018, showing the average cost of life insurance for people who smoked within the last 12 months. Correct as of April 2018.

Compare level term life insurance quotes

When you compare level term life insurance with MoneySuperMarket, you’ll be asked a series of questions about yourself and the amount of cover you need. If you don’t know how much cover you should opt for, use our calculator to add up your various financial obligations.

If you smoke, then disclose this information, because insurers can check with medical records to see your health history. Unfortunately, smokers are statistically more likely to claim on their insurance, so their premiums are higher – sometimes over 50% more than the amount a non-smoker would pay.

When you get to the results page, it will automatically show the level term life insurance policies for you to compare – but you can change this to show decreasing term policies too. You can also adjust the level of cover or the term duration to see how these affect your monthly premiums.

Remember that when you compare level term life insurance, it’s not all about price. You should look at the percentage of claims paid, and whether the policy includes elements you may need such as Accidental Death Benefit or the ability to increase cover on certain life events.

Always give careful thought as to which kind of policy will give you the best cover for your circumstances and always compare a wide range of policies before buying cover. Premiums can vary hugely depending on which provider you go to.

And finally, some insurers offer extras such as free legal advice, access to counselling services and a number of discounts, so if these are important to you then make sure this is something you compare life insurance policies by.

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